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Digitalization and development

An increasingly stronger link

Technological paradigms determine the development paths of countries


Currently, we are entering a new era of digitalization where it is crucial to understand the relationship between technological paradigms and sustainable development. Technological paradigms consist of the dominant set of technologies and practices that shape the economy and society at a given time. Since the late 19th century, different paradigms have triggered various industrial eras that have transformed social organization, production and governance models, and have defined the development trajectories of countries, with the latest paradigm being the digital revolution.

In recent decades, technological advances in data and information capture, storage, transmission, and analysis processes have enabled the development of new technologies such as cloud computing, big data analytics, the Internet of Things, artificial intelligence, blockchain, etc. We are witnessing increasingly shorter innovation cycles with more complex technologies, whose combined use offers innovative applications for the development of countries, while also creating challenges in terms of policy, regulation, and institutional frameworks.

Technological trajectories and industrial eras

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Source: own elaboration.


Technological paradigms, development paths, and wealth generation

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Source: own elaboration.


Digitalization has the potential to increase productivity, facilitate access to new markets, create new industries and jobs, improve service provision, increase people's well-being, and enable more sustainable production models with the environment. However, it can also mean new sources of social exclusion, greater concentration of wealth, and new risks in terms of security and data protection, as well as increased energy consumption, among others. Failure to advance towards digital transformation risks slowing down a country's growth and widening the gap in competitiveness, inequality, and development with countries at the technological forefront.However, this progress must be made with caution to avoid widening existing gaps and leaving anyone behind. Furthermore, given the potential of digital technologies as enablers of greener production models, lagging behind in their adoption would delay progress towards a more sustainable development model. Therefore, digitalization is a central element of inclusive and sustainable productive transformation in Latin American and Caribbean countries, particularly in their productive development policies and agendas.

Previous technological revolutions before digitalization allowed countries that capitalized on technical progress and adapted their productive and institutional capacity to make leaps in development. Thus, they achieved sustained increases in per capita income and quality of life for much of their population. This is the case of the United States, Europe, and Southeast Asian countries.


Evolution of GDP per capita by world region


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Fuente: Observatorio de Desarrollo Digital (ODD) from ECLAC based on the World Bank (WB), World Development Indicators (WDI), [online database] and Robert E. Lucas, Jr. (2004), 2012.


Given the pre-existing gaps between Latin American and Caribbean countries and those with higher development levels, both in the productive sphere (investment, productivity, and innovation) and in the social sphere (poverty, exclusion, and unequal income distribution), if no fundamental changes are made from the perspective of the ongoing digital and sustainable industrial revolution, the region would increasingly compromise its possibilities of sustainable development.


Digital transformation for inclusive and sustainable productive development


Digitalization is transforming the economy and society by facilitating changes and innovations in models of interaction and social communication, business, production, and provision of public services. Thus, digital societies and economies are emerging that increasingly base their activities (education, health, production, marketing, entertainment, etc.) on the combined use of different digital technologies. It is a disruptive process that gives rise to a new digitally interconnected system in which schemes from the analog and digital worlds integrate and interact, leading to complex ecosystems undergoing organizational, institutional, and regulatory adaptation. In this context, digital data created by people and machines play a central role in value creation. The use of this data must be governed by an appropriate framework, with regulations and institutions in place to ensure its use in a secure and respectful context for individuals.

Digitalization generates new forms of value creation with the potential to increase productivity, competitiveness, well-being, and social inclusion, with greater environmental sustainability. This value creation is based on knowledge generated from digital data extracted from production and consumption processes through intelligent systems based on advanced digital technologies, such as fifth-generation mobile networks (5G), the Internet of Things (IoT), edge computing, big data, artificial intelligence, virtual and augmented reality, and cognitive robotics, among others. This is giving rise to a fourth industrial era, characterized by the digitalization of all sectors of the economy and social activities.

Digitalization and development: Conceptual framework



Source: own elaboration.


Dimensions of digital development


Since the late 1990s, the digital revolution has been transforming our economy and society. This process has occurred sequentially, with three dimensions coexisting today:

  • Connected economy and society:corresponds to the mass adoption of the Internet facilitated by the deployment of digital infrastructure (fixed and mobile broadband Internet networks, traffic exchange points, data centers, etc.) and the mass adoption of access devices (desktop or laptop computers, tablets, and smartphones). This is complemented by sensor networks that dictate the pace of connection between people and machines through the Internet of Things.
  • Digital economy and society:corresponds to the emergence of new business models enabled by digital technologies for the provision of goods and services online. These digital platform models promote the generation and collection of data to offer new value propositions in the provision of goods and services across various economic sectors.
  • Digitalized economy and society:involves the transformation of business and production models of traditional sector companies into connected intelligent systems, thanks to the adoption of advanced technologies such as fifth-generation mobile networks (5G), the Internet of Things, cloud computing, artificial intelligence, virtual and augmented reality, big data analysis, and cognitive robotics. It also addresses changes in government and its relationship with people, the increase in service provision through digital means, and the adoption of advanced technologies for the provision of public services. The objective is to increase competitiveness, productivity, and sustainability of operations.

The process of digital transformation, which is constantly evolving due to the accelerated pace of technological progress, involves a synergistic feedback between its dimensions, generating effects on society, the productive apparatus, and the State. This dynamism represents a challenge for public policies, requiring constant adaptation and a systemic approach to national development.


Dimensions of digital development and its disruptive effects on society, the productive sector, and the State

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Source: own elaboration.


The impact of digitalization is not automatic or homogeneous across different countries, companies, or individuals. The potential benefits of digitalization in terms of growth, welfare, and sustainability will depend on factors such as efforts in digital technological extensionism to increase the degree of technological adoption, people's digital skills, the productive structure, and governance addressing emerging challenges. Among these, we can mention market concentration, cybersecurity, employment and automation, privacy, personal data security, and the ethical and regulatory challenges associated with artificial intelligence.

Without a comprehensive vision of digitalization, positive impacts could turn into adverse factors in terms of competitiveness, concentration, and inequality. For example, vulnerable segments of society could be marginalized from online services, and lack of digital skills could affect employment. Additionally, unsustainable exploitation and production practices could persist, widening the gaps between large and small businesses, limiting their ability to establish commercial and technological links. This phenomenon is particularly relevant for countries transitioning to development, such as those in Latin America and the Caribbean. The net impact will depend on awareness of the importance of digital transformation and timely policies to steer digitalization towards the region's sustainable development.

It is crucial to integrate digital transformation efforts with productive development at the enterprise level. Digital development policies in the digital age should not be limited to manufacturing and structural change processes but should expand their sectoral focus, considering the transnational nature of digital flows and incorporating new strategic sectors, such as digital ecosystems. Similarly, social development policies in the digital age must adapt to this technological transformation, focusing on education and strengthening digital skills, as well as promoting STEM education to have a greater number of technology specialists. The future will be digital, and therefore it will condition social protection and regional policies.